At a CSIS event today with U.S. Trade Rep. Katherine Tai and WTO DG Dr. Ngozi Okonjo-Iweala, entitled "Why the Developing World and All of Us Need Trade and the WTO," Tai spoke about a number of issues related to the WTO. I'm going to focus here on two: (1) China's non-market practices and (2) WTO dispute settlement reform.
Non-Market Practices
Here's what Tai said about non-market practices in her prepared remarks:
Our next priority is continuing to rebuild the WTO’s ability to negotiate new rules for the new challenges that we face. This won’t be easy or comfortable. But it is necessary to create the rules and mechanisms we need for the times through diplomacy and negotiation between Members, not through litigation between their hired guns. Let me explain what I mean. For example, consider the massive global economic disruptions from non-market policies and practices that are contrary to the basic rules and norms that we all agreed to. Things like industrial targeting or discriminatory interventionist activities of state-owned enterprises. This is how certain Members are continuing to skew the playing field, strategically and systematically. They seek to dominate key industrial sectors, promote national champions and discriminate against foreign competitors, massively subsidize key sectors, and manipulate cost structures. And as they become dominant suppliers for many important goods and technologies, they create supply chain concentrations and vulnerabilities—which in turn become levers for economic coercion. These practices are unfair and disadvantage workers in developing and developed countries alike, the very people the system should empower and lift up. So, we need to have real conversations about how the WTO can address these issues.
During the discussion that followed, the moderator asked Tai this question: "You talked about, I heard in your remarks, you want to rebuild the ability for the WTO to address non market policies and practices. Could you say a little bit more about this?" Tai responded as follows:
I think that there needs to be a recognition when we are taking on, actually all of our efforts in trade right now, to understand what the current global economic situation is. And I think that if you've not been paying very close attention, I think that there generally can be an assumption that, well, there's a lot of trade going on, that therefore the system must be working the way that we envisioned it. And it must be very fair and even and free. But in fact, that's not the case. I really appreciated Dr. Ngozi's recitation of the history. I think that there's probably more of this that we need to do in terms of looking at what has happened in the trading system in the last 25-30 years. The entire global economy is different, just if you go through the numbers and you look at GDP around the world. But the balance of wealth is different as well. There are more members in the WTO today than there were when it was done in 95. And then the members themselves have gone through quite a bit of evolution. The United States economy today is very different from what it was in 95.
Similarly, let's take non market practices. We are talking about China. The Chinese economy is very, very different today than it was in 1995. And I think it's a mixed picture. There's some incredible poverty elimination, but the externalities and the impacts of these Chinese economic policies on the rest of the world, including on our economy, including on the pressures and the norms of the WTO, are things that we need to be looking at. And I think that a large part of this reform agenda is about actually committing and investing our energy, to be honest with each other, to look at the facts honestly, to come to the conversation with an open mind. And then to actually grapple with, how do we restore those foundational principles and values, which ... we still very much stand by in terms of the international rules based order, an order that is based on rules and law rather than might and power. But I think that where we are today, we've actually deviated quite a bit from what we were trying to build. And it's understanding that delta and having the conversations about it that is actually going to lead us to a constructive process around that.
In reaction, I want to point to paragraph 46 of China's Accession Working Party Report, which states:
46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.
If I were drafting a WTO provision on these issues that had general principles to be applied to all, I would probably do it differently than it was done in paragraph 46. But in the context of a specific provision that applies only to China, I think it was done pretty well. Of course, to see how it actually works in practice, somebody would have to test it out in a complaint against China, and I'm not sure why that hasn't happened yet. The U.S. could do this, but so could the EU or Canada or someone else, or a whole group could do it together. While new rules in this area could be useful, I think it's a mistake to ignore the existing rules that were designed specifically for the Chinese non-market practices problem, or at least one aspect of that problem.
Dispute Settlement
Here's what Tai said about dispute settlement in her prepared remarks:
Finally, I want to highlight dispute settlement reform. The goal here is not restoring the Appellate Body or going back to the way things used to be. It is about providing confidence that the system is fair. And revitalizing the agency of Members to settle their disputes. The system was meant to facilitate mutually agreed solutions between Members. But over time, it has become synonymous with litigation—costly and drawn out, and often only accessible to Members who have the resources to foot the bill. The system has also suffered from a lack of restraint. The Appellate Body systematically overreached to usurp the role of Members themselves to negotiate and create new rules. And in so doing, it undermined the ability of all Members to defend their workers from harmful non-market policies. For the last year, we’ve been actively participating in innovative and constructive discussions with WTO Members of all sizes—including developing country Members—to hear their concerns and solutions for a better system. We are thinking creatively and have come forward with concrete ideas that could promote fairness for all Members. For example:
- We should make practical and appropriate alternatives to litigation—like good offices, conciliation, and mediation—real options for the entire WTO membership.
- We should ensure that dispute panels address only what is necessary to resolve the disputes and resist the urge to pontificate. And any corrections to reports or decisions must be limited to addressing egregious mistakes.
- We should end judicial overreaching and restore policy space so that Members can regulate and find solutions to their pressing needs, such as tackling the climate crisis or defending their workers’ interests from non-market policies.
And we urgently need to correct WTO panel reports that have asserted that the WTO may second-guess Members’ legitimate national security judgements, something none of us ever intended. This calls into question foundational principles of how far-reaching trade rules should be.
She was then asked two questions about this issue during the discussion. The first question was: "What should the WTO dispute settlement system look like?" Tai responded as follows:
So let me say a little bit more about the process that is happening in Geneva. So we've described it in turn as an informal process, but I feel like that takes away from the importance of the process. So I don't really like that description. It's a, perhaps we can describe it as an organic process. We tried describing it as bottom up, but then you know, it's member driven and we said well, but you know, the members aren't at the bottom of this organization. So bottom up doesn't seem like quite the right term either.
I guess what I would say is, it's a pragmatic, organic and a constructive process that we are participating in, that we are supporting. ... We are asking, and we ourselves are asking of ourselves, for members to come to the table and to advance what we're calling an interests based negotiation and discussion. And that's as opposed to a position based or an end result based negotiation.
And I want to call attention to this process also because I think that this is a really important experiment and innovation that we are trying at the WTO. Usually what happens at the WTO, and we lived this at MC12, you show up, you've got all of these papers. They're all negotiating positions that have been put down. Imagine you've got 164 of them, and then you have to arrive at some kind of an agreed solution. And everybody's smart. And so they're all gaming, if this thing is what I'm aiming for, and what I can live with, and actually what I think is pretty good, in order to get that I'm gonna have to dial it all up by 100 and put that on the table and hope that survives the negotiation with 163 other members, right? When it's not positional, it's a very uncreative, a very constipated process. We don't think that we can afford to do that. And so that's the process, that's the kind of process that we're advancing, which is an interests based conversation.
So that's a long way of answering your question, which is to say, I don't have for you a picture that I can paint that this is the endpoint that I want to get to. Instead, what I'm endorsing is a process that is inclusive, so that when we get to the end of it, all of us, the US included, but our developing country partners, the big ones, the small ones, the frequent users, the members of the WTO who have never used the system, can look at the result and see their interests reflected in it.
The second question came from Gabe Cabañas of CFR, who asked:
Quick question for Ambassador Tai, prior to your time [at USTR], you had worked on the trade agreement within North America, USMCA. And I was just curious, looking at how the United States is using USMCA, specifically Chapter 31 for state to state dispute resolution systems, do you see this as, from the US perspective, as a potential model for dispute settlement within the WTO ... or even looking at other trade agreements within the world itself?
Tai responded as follows:
So Chapter 31, which is ... the formal dispute settlement procedures in USMCA, could they be a model for a revived WTO or reinvigorated WTO dispute settlement system? You know, you've hit on a really interesting aspect of the conversation that I think only the geekiest of the geeky lawyers ... will know but yes, we are using the USMCA dispute settlement procedures. Did you know that in all of our FTA dispute settlement chapters, there is no second tier? That we're able to resolve our disputes just with one tier? Now, I say that in a bit of a cheeky way knowing how attached the rest of the WTO membership is to that second tier, but you know, I just wanted to say I think that, let's think about what the purpose of dispute settlement is, right? It's right there in the name, you're helping the parties to the agreement resolve something between them that is creating friction and is creating a disagreement. And ultimately, because we are sovereign parties, what these mechanisms should be doing is helping to move us to the point where there is political will to address the problem.
And so in that sense, then, a dispute settlement system could look almost any way. I think it is really key to make sure that the form of dispute settlement fits the fuss and the relationship. And so we're very open, again, I don't have a specific template that I'm trying to impose on the conversation at the WTO, but I really want to endorse what Dr. Ngozi also mentioned which is, dispute settlement is still ongoing at the WTO. We are still getting sued, quite a bit. And our lawyers are still working long, long hours defending the United States and also looking at how we can use this system to help us motivate our partners to address our concerns. And that, at the end of the day, is what we need to have.
I can see the argument that, as a general matter, negotiations may struggle when too many countries present position papers, and each one is trying to game the negotiations to get to a desired outcome. But the negotiation on the WTO dispute settlement impasse right now is a bit unique, in that only the U.S. was so upset with the functioning of the system that it blocked appointments to the Appellate Body, which is the direct cause of the impasse. In these circumstances, I'm not sure how progress can be made until other WTO Members understand what exactly the U.S. wants, so these Members can decide whether they can live with the U.S. demands. Thus, I think we may need a concrete U.S. proposal here before we can get to a conclusion.
